The Belarusian real estate market is on the up

With an average monthly income of almost BYR 7 million (€419) across the country and close to BYR 9 million (€520) in Minsk, Belarusians earn roughly the same as Bulgarians and Romanians but their expectations are high.

“Belarus compared to other countries in the region is at an early stage of its development of a full market economy but […] the country is already a consumer society and there is no way of going back,” said Francis Delay, Head of Office, European Bank of Reconstruction and Development in Belarus, in an interview for Why Emerging Europe.

On a spending spree

And they’re looking to buy things. Different estimates show that Belarusians spend between €700 million and €1 billion euro each year on shopping in Poland and Lithuania with some €200 million on fashion alone. At the beginning of 2015, the total retail space available in Minsk amounted to some 900,000 sqm.

“From the point of view of international brands, most of the existing retail space is not really attractive in terms of the size or available area. Only a few malls in Minsk meet the requirements of international retailers.” says Denis Chetverikov, Associate Director, Consultancy & Valuation Department at Colliers International in Belarus.

Currently, about 375,000 sqm are ready to be constructed. A lot of international fashion chains and retailers are showing interest in entering the Belarusian market, especially in Minsk. According to the regulations, their presence is possible only if they are represented by local companies that operate as an official franchise.

“The lack of high quality retail space is the main barrier for growth but developers are gradually solving this problem. At the moment projects like Palazo Mall, Green City, Galleria Minsk and Dana Mall are under construction. All of them will meet the requirements of international chains and, hopefully, they will attract many of them,” says Chetverikov.

According to Colliers International, developers and chain retailers present in Belarus are gradually increasing the geographical scope and decide to go beyond Minsk.

“Since 2012 the retail space market in smaller cities is developing even more rapidly than in Minsk. The most important markets are Brest, Witebsk and other regional and local centres with a population exceeding 100 thousand inhabitants. Of course, everything is interconnected — if Minsk cannot attract too many big brands, it is even harder to expect it from the regional centres,” concludes Chetverikov.

IT is a success

Colliers’ Chetverikov says that the idea of developing the IT sector in Belarus turned out to be successful not only in purely business terms but it has also created the demand for renting office space.

“Over the last couple of years IT businesses were the biggest and most active players in the office market. The space (mostly B2) benefited from the tenants of Hi-Tech Park. IT companies, for which offices are the “manufacturing” space, require B2 class offices. What is more, in most cases, IT companies rent at least a couple of floors or even entire business centres, which would be impossible in the case of companies from other sectors,” says Chetverikov.

At the beginning of 2015, the office market as a whole accounted for 800,000 sq m of gross leasable area (GLA). In 2014, the Minsk market showed high growth — during the whole year the available market space increased by 221,900 sqm (more than 2.3 times more than in 2013). According to the forecast, in 2015 the market will further grow by 251,400 sqm of space (+31.2 per cent in comparison to 2014 office stock).

“Rents in Minsk are generally higher than in the majority of big cities in neighbouring countries. For example, rents reached the level of €37 euros per 1 sqm excl. VAT and operating costs. At the end of 2014, one could see a decrease. It is not only connected with bigger supply of new office space but also with the crisis in the Belarusian economy,” says Chetverikov.

Meeting the needs

Warehouse space is also in demand. For example, between 2013 and 2014 only, Colliers International reported a shortage of warehouse space of over 100,000 sqm.

“Tenants absorbed entire available warehouse spaces, sometimes as big as 20,000 sqm at the rates that are hard to imagine in other CEE countries including UE member states: almost €12 per 1 sqm excl. VAT and operating cost. In the premises of smaller, A-class warehouse spaces, the rents were sometimes even higher,” says Chetverikov.

The main tenants were professional logistical operators and chain retailers, who looked to set up their distribution centres. At the end of 2014, the warehouse market saw a fall in rents and increase in vacancy rate due to the fact that some 215,000 sqm of new high-quality warehouse space became available.